China's Industrial Company Profits Fall 5.2% on Exports

Chinese industrial companies had their first January-February profit decline since 2009 as slowing exports and a government campaign to cool property prices damped earnings.

Net income dropped 5.2 percent from a year earlier to 606 billion yuan ($96 billion), the National Bureau of Statistics said on its website today. That compared with a 34.3 percent gain in the first two months of 2011. The bureau didn’t release a figure for January because of a weeklong Chinese New Year holiday that disrupted production.

The decline is “clearly alarming,” said Chang Jian, an economist at Barclays Capital in Hong Kong who formerly worked for the Hong Kong Monetary Authority and the World Bank. “More policy easing should be on the way, though at a measured pace,” she said. At the same time, the government is unlikely to reverse property-market curbs, Chang said.

Accommodative U.S. Policy

The Shanghai Composite Index rose 0.5 percent at 10:15 a.m. local time after U.S. Federal Reserve Chairman Ben S. Bernanke said yesterday that continued accommodative monetary policy will be needed to make further progress in reducing unemployment.

Starting last year, the statistics bureau began to release the data on a monthly basis instead of every three months. It also increased the minimum annual sales for businesses included in the survey to 20 million yuan from 5 million yuan.

Among 41 industry categories, 23 reported an increase in profits, 14 saw income fall and one broke even. Companies in the category of oil refining, coking and nuclear fuel processing switched from profits to losses, while two other industries saw losses widen, the bureau said.

January-February profits rose 120 percent in the first two months of 2010 and fell 37 percent for the same period in 2009.

Companies’ sales rose 13.4 percent to 12.1 trillion yuan in the first two months, today’s report showed.

Property restrictions including tighter rules on down payments, higher mortgage interest rates and curbs on multiple home purchases have helped push prices down nationwide. Home prices fell last month from January in 45 of the 70 cities the government tracks, with sales values dropping 25 percent in the first two months, according to statistics bureau data.

Developers' Cash

Developers including Sino-Ocean Land Holdings Ltd. and China Overseas Land & Investment Ltd. (688) are setting up property funds to diversify sources of revenue and cope with a cash shortage. Chinese developers’ cash ratio dropped to the lowest since 2008 in the third quarter last year, according to data on 139 companies compiled by Bloomberg.

“The weakening of corporate results is further evidence of a slowing economy,” said Dariusz Kowalczyk, a Hong Kong-based strategist with Credit Agricole CIB. The report raises chances of “more decisive monetary policy easing” by cutting interest rates or required reserves, while appreciation in the yuan may be minimal at most, he said.

China reported a February trade shortfall of $31.5 billion, the biggest in at least 22 years. Exports rose 18.4 percent from a year earlier, compared with the median analyst estimate of a 31.1 percent gain.